Crypto market: BoE deputy governor: Crypto must be regulated according to strict principles | news

The crypto market has been struggling with volatility and losses for quite some time

Supervisory authorities must bring the use of crypto-technologies in the financial sector into a regulatory framework

Innovation and regulation go hand in hand

The crypto market is struggling with “crypto winter”.

For quite some time, the crypto markets have been struggling with the so-called “crypto winter”, which has mainly been characterized by instability and losses, as explained by Jon Cunliffe, deputy governor of the Bank of England (BoE). “A widespread collapse in crypto asset valuations has affected the crypto ecosystem, leading to a number of high-profile corporate failures.” According to Cunliffe, the clearest indicator of the crypto winter is that Bitcoin, considered the most important crypto asset, has lost up to 70 percent of its value since November. While Bitcoin was still trading at $61,083.88 on November 1, 2021, the current price is $21,678.53 (as of July 25, 2022). The current development shows a drop in value of over 60 percent.

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Learn from the crisis

As Cunliffe goes on to explain, there are four lessons to be learned from this development. The first lesson is that there are inherent risks in finance, including those associated with cryptocurrencies. “While technology can change the way these risks are managed and distributed, it cannot eliminate them.”

The second lesson is that regulators must work to bring the use of crypto-technologies in the financial sector into a regulatory framework. More specifically, Cunliffe explains that what matters to regulators is not what will happen next to the value of cryptoassets, but what needs to be done to ensure that the expected development and innovation can take place without increasing and potentially creating systemic risks.

Regulation according to the principle: “Same risk, same regulatory result”

Lesson number three is that expanding the regulatory framework to include the use of crypto-technologies must be based on the principle of “same risk, same regulatory outcome”. “The starting point for regulators should be to apply the same regulation to the risks associated with providing a financial service, regardless of how it is provided,” Cunliffe said. Different technologies can of course mean that existing rules are not effective. Therefore, it must be ensured that you can still achieve the same level of risk reduction and, in connection with this, the same regulatory result. If it then turns out that certain crypto-related activity cannot be adequately mitigated or controlled, that activity should not be allowed to continue, Cunliffe said.

Cunliffe’s final lesson is that innovation and regulation are not enemies, but rather friends. “Innovators, like regulators and other public bodies, have an interest in the development of appropriate regulation and risk management. Only within such a framework can they truly thrive and secure the benefits of technological change.”

E. Schmal / Editor finanzen.net

Image credits: r.classen / Shutterstock.com, Wit Olszewski / Shutterstock.com

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